Healthcare Newsletter

Involved in a Not-For-Profit? Some new requirements are in place, effective July 1, 2014

If you’re a corporate officer of a non-profit organization in New York, your job is about to get a bit more complicated. The Non-Profit Revitalization Act (“the Act”), signed into law by Governor Andrew Cuomo in December 2013, is intended to simultaneously simplify regulation of non-profits and enhance oversight. But practically, it means that officers of non-profit corporations will have several new mandates to comply with when the Act becomes effective on July 1, 2014.

Many of the new mandates in the Act simply serve to turn certain safeguards that were already considered “best practices” into actual requirements. These new requirements include the following:

Conflict of Interest Policy

Non-profits must keep a formal conflict of interest policy, which must include 1) a definition of what constitutes a conflict, 2) procedures for disclosing the conflict to the board of directors or an independent auditing committee, and 3) procedures for disclosing related party transactions. The corporation must also prohibit a person with a supposed conflict from participating in the deliberation or voting process of the conflicted transaction. Directors must also complete a written disclosure form, which identifies any entity of which the director is an officer, director, member, owner, or employee, and with which the non-profit organization has a relationship. This form must be signed and updated annually.

For transactions where a director, officer, or key employee of the non-profit, or any relative thereof, has a 35% or greater interest in the other transacting party, or greater than 5% ownership interest if the other party is a partnership (i.e. a “related party transaction”), the non-profit must further be able to demonstrate that the transaction is fair and reasonable, and that it is in the best interest of the corporation.

Whistleblower Policy

Non-profits must also have a policy stating that any person who reports illegal and/or fraudulent activity in good faith will not suffer any hostility or adverse employment consequences as a result. The corporation must also appoint an administrator for the whistleblower policy, who will report either to the board of directors or to an audit committee appointed by the board, and will distribute copies of the policy to employees.

Reports to Attorney General

Non-profits are already required to provide financial reports to the Attorney General. The depth of those reports is based on the annual gross revenue of the corporation, but the thresholds for each will be increased under the Act. As of July 1, nonprofits will be required to provide an unaudited financial report to the Attorney General if they collect less than $250,000 in gross revenue. For corporations that collect between $250,000 and $500,000, that report will have to be conducted by an independent CPA, while corporations collecting more than $500,000 in a given year must provide a full audit report compiled by an independent CPA.

Board Chair

The Act prohibits any employee of a non-profit corporation from serving as chairman of the board of directors, effective January 1, 2015.

Executive Compensation

Under the Act, no executive may be present at a meeting deliberating the level of his or her own compensation.

The Act gives the Attorney General’s Office enhanced powers to enforce its provisions. The Attorney General may enjoin a corporation from performing a related-party transaction or void it after the fact, and may order penalties and forcibly remove officers and directors. A penalty for willful or intentional conduct in violation of the Act may be as much as twice the amount of the improperly obtained benefit.

Why are we writing about this today? Well, its a boring topic and we assumed many of you are on vacation and probably would skip today's email. However, this is an important topic we wanted to make sure we covered on or around the effective date. Many readers are involved in a non-profit, maybe not as a fiduciary, however, you may be in a position at some point to provide services, or serve, and it is important to understand terms of dealings you are required to abide by. For assistance in generation of any of hte above policies, or for review of you Not-For-Profit's Bylaws, etc., contact Jennifer or Richard Zimmerman to discuss. Our office represents medical not-for-profits and general business not-for-profits and we are happy to assist.